FHA Mortgages in Today’s Market

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Providing more loans than any other organization, the FHA was established in 1934 and has given loans to over 35 million borrowers. Understand, though, the FHA does not actually fund your loan, it simply insures it. FHA makes it safer for lenders to grant loans because they know that the FHA will pay off whatever is left should you default.

President Bush convinced Congress in 2006 to pass a proposal to modernize the FHA, which gave deserving families the opportunity to purchase homes. The mortgage rate for the FHA was just 5.5% when the proposal was passed. (Here’s a quick aside is for those looking to compare mortgage rates. In today’s market, current FHA mortgage rates dictate that for a 30 year fixed loan with 1.875 points, the interest rate is 6%. You will only have 1.25 points for a 15 year fixed loan, but the interest rate will also be 6 percent.) As a borrower, there are a couple reasons why an FHA loan could be your best option. First, to qualify for the loan you do not need to have high quality credit. Because of the sub-prime lending problem, many lenders have become far more strict about who they lend to. It just isn’t good enough to have above average, let alone average, credit. But, you can often qualify for an FHA loan depending on your income, debt-to-income ratio, and a couple of other factors.

Bankruptcy can be one other thing that impairs people. As long as there are other favorable factors, FHA loans will still consider individuals who have a previous bankruptcy. If you are really concerned about whether you will get financed or not, and you have bad credit or a bankruptcy on record, then you should try credit consolidation and/or get a debt management plan. Typically, people can get help with making the right steps to reduce their debt-to-income ratio, not to mention potentially improving their credit score.

FHA mortgages usually don’t require as large a down payment as is required with other loan types. This is usually seen as an added benefit for many borrowers. When a larger down payment is possible, it will often make more sense to use the remaining money from the down payment as capital investment to help it grow over time.

The FHA is designed to help people, who are deserving and responsible, buy their own homes. This is one government programs that actually works pretty well.

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